Decisions Delivered by the Assessment Review Committee

1. SOCIÉTÉ DE LA DORDOGNE V/S THE REGISTRAR-GENERAL ARC/RG/57-21

This is a unique case where the Applicants lodged representations before the Assessment Review Committee (ARC) after being authorised to do so by the Supreme Court in SOCIETE DE LA DORDOGNE & ORS v THE REGISTRAR GENERAL [2021 SCJ 46] – where the Applicants had applied for a Judicial Review of the decision of the Respondent to claim underpaid registration duty and land transfer tax from the Applicants.

In the above-mentioned case, the Supreme Court explained that since the Applicants were contending that the deeds were exempt from duty and taxes, representations should have been made to the ARC, making use of the alternative remedy available to them. Notwithstanding that, the Supreme Court allowed the Applicant to make representations to the ARC as it considered it, on the facts, to be in the interests of Justice to do so, and because it considered that the ARC is better placed to determine whether deeds are exempt from duty and taxes.

The Supreme Court thus identified two conditions for exemptions to be fulfilled, and therefore two issues for the ARC to determine:

1. Whether the deeds witness a transfer by a société to a company where the associates of the société and the company are the same persons; and
2. Whether the deed witness a transfer of undertaking.

After a thorough analysis of facts and law, the ARC concluded that the first condition for exemption was fulfilled. As for the second condition, the ARC found that it was ex-facie not fulfilled. However, the ARC was of the view that it is required to give effect to the Supreme Court’s directions “according to its true intent, meaning, and spirit”, and after a fact-finding exercise, concluded that the second condition was fulfilled.

Considering the above, the ARC directed the Respondent not to press the additional claims amounting to approximately Rs 250M.

The ARC also promptly added that this case was decided on its set of facts and should not be considered as authority for the proposition that a deed which does not fully and expressly satisfy the requirements of an exemption can be saved by lodging representations before the ARC.

•  HILLMAN LTD V/S DIRECTOR GENERAL-MRA ARC/IT/17-22

The matter concerned the refusal of an Objection to a Notice of Assessment made outside statutory time frame.

The Applicant was issued a Notice of Assessment dated 29 June 2021 and the Respondent received a Notice of Objection on the 23^rd November 2021 – 120 days after the prescribed statutory delay. The Respondent subsequently issued a letter dated 7^th December 2021 requiring the Applicant to justify the delay in lodging the Notice of Objection. The Applicant replied to same through an email on the same date. Following this, the Respondent issued a Notice under S. 131A(7)(b) of the Income Tax Act (ITA) to refuse the late objection.

The Applicant then lodged representations with the ARC to determine whether the decision of the Respondent to refuse the objection should be maintained.

The ARC concluded that the refusal of the Respondent should be maintained. In reaching this decision, the ARC explained that the Applicant was solely to be blamed for failing to comply with the required process within the statutory time frame clearly laid down in the ITA. The ARC also explained that the reason the Applicant had put forward to justify its delay could not be considered as a “reasonable cause” as it considered that the obvious step if the Applicant felt aggrieved was to file a Notice of Objection after duly receiving a Notice of Assessment, especially given that it was assisted by a reputed Management Company, through which it was interacting with the Respondent at all material times in relation to its tax affairs.

• MR VIJAYSINGH BULLEERAZ V/S DIRECTOR GENERAL-MRA ARC/IT/90-19

This is yet another matter concerning refusal of an Objection to a Notice of Assessment made outside statutory time frame. However, the ARC in this matter agreed to set aside Respondent’s decision to refuse the objection of the Applicant.

The Applicant in this matter lodged its Notice of Objection more than 6 months after a Notice of Assessment was issued by Respondent to him – well outside the prescribed statutory delay of 28 days.  

Accordingly, the issue for the ARC to determine in this matter was whether the failure by the Applicant to file his objection within the prescribed statutory delay was due to some “reasonable cause”.

After an analysis of the facts, the ARC was of the view that the Applicant could not be held to have duly received the Notice of Assessment. The ARC was also of the view that the delay in filing the objection could not be attributed to any negligence or omission on the part of the Applicant, given that he had retained services of an accounting firm to manage his tax affairs. Accordingly, the ARC deemed it fit to set aside the Respondent’s decision to refuse the Applicant’s objection.

It is interesting to note that in the ARC’s view, what is a ‘reasonable cause’ is a question of fact prevailing on a case-by-case basis. For instance, there was a ‘reasonable cause’ in the present matter as the Applicant had not duly received the Notice of Assessment whilst the Applicant in HILLMAN LTD did, and so the ARC found no ‘reasonable cause’.

• STELLA TELECOM (MAURITIUS) CO LTD V/S THE REGISTRAR-GENERAL ARC/RG/ 138-19

This matter dealt exclusively with procedural issues pertaining to the raising of a point of law which did not form part of the grounds of representation.

Following a transfer of shares held in Société to the Applicant for a prix declared at Rs 1.00, the Respondent informed the Applicant that by virtue of S. 17(1) of the Registration Duty Act (RDA), she had reassessed the value of the transferred shares from Rs 1.00 to Rs 15,600,000. The Respondent therefore claimed the additional registration duty amounting to Rs 779,800. The Applicant, feeling aggrieved by this claim, lodged representations with the ARC.

Afterwards, Counsel for the Applicant moved to raise a point of law to the effect that the Applicant is not liable to registration duty as, by virtue of Paragraph 8 of Item J of Part 1 of the RDA, the transfer of shares of a “company” attracts duty only if the “company” holds immovable property and Sections 2 and 24 of the include a Société. Counsel for the Respondent objected to this point being raised as it did not form part of the grounds of representation of the Applicant.

The ARC, leaning on the Rationale for tribunals (like the ARC) to be free from technicality laid down by the House of Lords in Gillies v Secretary of State for Work and Pensions [2006] UKHL 2 and the Principle that a defendant cannot be deprived of the right to raise a defence in law at any stage before judgement laid down in Jekarahjee v The State of Mauritius [2009] SCJ 227, allowed the Applicant to raise and address the proposed point of law.

• IVY LEATHERS LTD V/S DIRECTOR GENERAL-MRA ARC/IT/379-18

This is quite an important decision in that it informs of what can happen when grounds of representation do not challenge Respondent’s decision.

The Respondent issued a Notice of Assessment on 29 June 2018 accompanied by a letter setting out the “Reasons and Basis for Assessment”. The Applicant subsequently filed a Notice of Objection, without reasons and evidence, on 27July 2018 to object to the assessment without. Then, for the purpose of considering the objection, the Applicant was requested, by way of a letter, to submit reasons together with documentary evidence for the grounds stated in the Notice of Objection. The Applicant failed to respond to the above despite a reminder. The Respondent hence issued a Notice in accordance with S. 131B (4) if the Income Tax Act to inform that the Objection had lapsed. Following this, the Applicant then lodged representations with the ARC with its ground of representations being a replica of the ground in its Notice of Objection (without reasons and Evidence). The Respondent then took preliminary objection to the effect that the ground of representations does not challenge the Respondent’s decision to lapse the Applicant’s objection but challenges the merits of the assessment.

Applying the law in Ocean Fishing Co. Ltd v The Assessment Review Committee & ANOR [2014] SCJ 140, the ARC found that it would be unable to consider the only ground of representation put forward by the Applicant as it relates to the merits of the assessment. The ARC accordingly concluded that the preliminary objection was well taken by the Respondent and the representations had to be set aside.

• MR GILBERT GAËTAN ROME V/S DIRECTOR GENERAL-MRA ARC/IT/64-17

In this matter, the ARC was presented with two separate issues for the same Applicant.

 Firstly, the Applicant was an employee of a Company. After an examination of the company’s records, the Respondent contended that the Applicant was deriving car benefits from the company which constituted taxable fringe benefits and was not declared in the Applicant’s returns in accordance with regulation 3A of the Income Tax Regulations.

Secondly, the Respondent contended that the Applicant claimed interest relief on secured housing loan for the year ending 31^st December 2014 and the 6 months period up to June 2015, which was disallowed as he was allegedly already owner of a residential building at the time the loan was contracted.

As a result, the Respondent issued Notices of Assessment to the Applicant. The Applicant then objected to the assessments and failed to provide information requested by the Respondent. The latter finally made two representations before the ARC, one in relation to the Car Benefit and the other in relation to the Housing loan.

In relation to the Car Benefit, the ARC found that since the Applicant was using the company car exclusively for the benefit of the company, it was not a personal advantage that the Applicant received in the wording of S.10 of the Income Tax Act. The ARC therefore allowed the representation with respect to the Car Benefit.

However, the ARC decided to set aside the representation with respect to the interest relief claimed on the housing loan as the Applicant was already owner of a house which was in fact used to guarantee the loan contracted by him in contravention of the conditions under S. 27A of the Income Tax Act.

• BETONIX LTD V/S DIRECTOR GENERAL-MRA ARC/IT/529-22

This was quite an interesting matter in that the Representation lodged before the ARC had no grounds at all.

The ARC concluded that this was in breach of S. 19(1) of the MRA Act and could not be entertained by the Committee.

In reaching this decision, the ARC explained that whilst the Applicant has filed a Statement of Case which sets out the grounds of grievances, the requirement to do so exists independently of the requirement under S. 19 of the MRA Act. The ARC further explained that the fact that an Applicant also files a Statement of Case does not exempt him/her from filing written Representations specifying the reasons for Representations.

Moreover, the ARC further added that the requirement to specify the reasons for representations cannot be taken lightly not only because it is a statutory requirement, but also because S.20(1) of the MRA Act clearly provides that at the hearing “[n]o issue shall be raised other than those set in the grounds of representations.

• RAMIAH RAMSAMY V/S DIRECTOR GENERAL-MRA ARC/VAT/221-19

This is another matter concerning the addition/amendment of grounds of representations.

The Applicant in this matter held a general’s retailer’s license and operated a shop. The latter had not submitted any Value Added Tax (VAT) return to the MRA since he was not registered for VAT. The Respondent then informed the Applicant that the turnover of his taxable supplies, computed around Rs 8,000,000, had exceeded the threshold for compulsory VAT registration of Rs 6,000,000, and that as such he ought to have been VAT registered by virtue of S 15(1) of VAT act. The Applicant then submitted requested explanations supported by documentary evidence as to why he should not be registered for VAT. When examination of same revealed differences/fluctuations with those already available at the Respondent’s, the latter issued Notices of Assessment for both Income Tax and VAT. The Notice of Assessment for VAT claimed an amount of Rs 1,746,342 inclusive of interest and penalties. The Applicant objected to the assessment, but the VAT assessment was maintained, and Notice of Determination was issued to the Applicant. Feeling aggrieved by this, the Applicant lodged representations before the ARC. The Applicant then moved to add two new grounds of representation, and the Respondent objected to that.

In allowing the motion of the Applicant, the ARC explained that the two grounds are more akin to points of law as opposed to points of fact as they can be considered ­ex-facie the Notice of Assessment without the need to adduce additional evidence. The ARC also considered that allowing the addition/amendment of the grounds of representation would only assist it to determine “the real question in controversy between the parties”. Finally, the ARC considered that it was fair and reasonable based on the facts – inter alia, the assessment requires a retired pensioner running a mere shop to pay a consequential amount.

• COGIB LTEE V/S DIRECTOR GENERAL-MRA ARC/IT/238-18 & ARC/VAT/126B-18

This case was concerned with the requirement to pay a percentage of the tax claimed as a preliminary condition for an objection to a Notice of Assessment to be dealt with.

The Applicant in this case operated a beauty parlour. Following an examination of the Applicant’s tax affairs, the MRA issued Notices of Assessment for Income Tax, VAT, TDS, and PAYE. The Applicant objected to the Assessments but failed to satisfy the requirement to pay 10% of the amount claimed. The Respondent accordingly lapsed the objections under S. 131A (6) of the Income Tax Act and S. 38(5) of the VAT Act respectively.

The issue to be addressed by the ARC was therefore the failure to satisfy the 10% requirement which is the basis for the Respondent’s decision to lapse the Notices of Objections.

In reaching their decision in this case, the ARC began by reminding that the 10% requirement provided under both S. 131A (2)(b) of the Income Tax Act and S. 38(2) of the VAT Act stood the test of constitutionality in the Supreme court case of Dahari & ORS v Director General, MRA & ORS [2009] SCJ 206, and also that the requirement has been statutorily smoothened over time – from 30% to 10%. The ARC further noted that not a single document was filed to substantiate the Applicant’s case. Finally, the ARC did not accept the Applicant’s excuse of COVID-19 Pandemic to explain the failure to satisfy the 10% requirement as the obligation arose well before COVID-19 pandemic hit Mauritius around March 2020. For these reasons, the ARC maintained the Respondent’s decision to lapse the Notices of Objection, and accordingly set aside the representations.

1. K. WOOD CO LTD V/S DIRECTOR GENERAL-MRA ARC/VAT/036-22

This case provides valuable insights on the exemption from payment of VAT under Item 65 of the First Schedule to the VAT Act (Item 65) and on VAT Ruling 21.

The precise dispute in this case was whether the assignment carried out by the Applicant formed part of “Construction” (as contended) by the Applicant, or “furnishing”, (as contended by the Respondent) – the latter being part of a list of items which VAT Ruling 21 clearly rules out of Items 65.

In finding that the Applicant’s works do not fall under the category of “furnishing”, the ARC explained that there is absolutely no indication in item 65 that construction should be limited to building a concrete structure (batiment à gris). The Committee added that the intent of Parliament was to cover the full construction project until the building is fit for residential purposes, and that this included Shopfitting works, i.e., the fitting out of buildings with equipment, fixtures, and fittings, as carried out by the Applicant. The ARC further added that the English Law concept of “degree of annexation” which distinguishes items which cannot be removed from a building without causing damage from those that can be easily removed without causing damage, is a valuable indicator in such cases.

The ARC thus determined that the exemption under Item 65 applied to the Applicant and upheld the representations.

1. GEN PHARM V/S DIRECTOR GENERAL-MRA ARC/IT/460-16

The Issue in contention in this case was in relation to an allowance of only 50% on ‘cost of sales’ by the Respondent which was claimed in totality by the Applicant.

In allowing the representations, the ARC found the Respondent did not allow the whole amount on cost of sales due to existence of two companies/legal entities, Gen Pharm and Island Pharmaceuticals, and hence two sets of invoices/documents which the Respondent looked in isolation. The Committee was of the view that the Respondent overlooked the fact that Island Pharmaceuticals did not undertake any trading activities up until 1^st March 2014, since it was not holding any trading licence and that trading could only be carried out by Gen Pharma.

The ARC also noted that whilst the Respondent had contended that proper documents were not available at the objection stage to take a decision, it was confirmed during the hearing that documents as well as explanations on the existence of two sets of documents were provided at the objection department.

1. CRAYON MAURITIUS LTD V/S DIRECTOR GENERAL-MRA ARC/IT/027-22

This is an interesting case which sheds light on the preferential tax under S. 44B of the Income Tax Act (ITA), particularly in relation to the exportation of software.

The Applicant was involved in the selling of Microsoft licenses and software to international clients. The latter, in effect, received links from Microsoft’s subsidiary in Dubai or Ireland which were communicated to customers who could then download the software from a Microsoft server (not in Mauritius). As the software was delivered through digital means, there were no documents which are normally available for import/export. The Applicant, considering that its company was engaged in the export of goods, applied a tax rate of 3% in accordance with S. 44B ITA in its amended Return. The Respondent contended, considering that to be classified as “export of goods” under S.2 ITA, the goods need to be shipped.

Therefore, the issue for the ARC to determine was whether for the purpose of S. 44B of the ITA, the Applicant was engaged in the export of     goods as defined under S.2 ITA, which would allow it to benefit from the preferential rate of 3% tax.

The ARC decided in favour of the Respondent. The Committee explained that Parliament has not and could not have intended electronic transfers and transactions such as the Applicant’s to fall under the definition of “export of goods” in S.2 ITA because then the legislator would have had to regulate as import/export each and every download of applications using the internet. The Committee also explained that, by using the words “shipment” and “Shipper”, Parliament clearly intended for an export to involve some kind of transportation as opposed to an e-transmission as in the present case.

1. ALTEO ENERGY LTD V/S DIRECTOR GENERAL-MRA ARC/IT/217-21

This is a very important ARC ruling which turned around the interpretation of Item 7 – Sub part B – Part II -Second Schedule to the Income Tax Act (Item 7) and Regulation 23D of the Income Tax Regulations (The Regulation).

For the year of assessment ending 30 June 2019, the Applicant, which is part of a group operating mainly in the sugar industry, treated 80% of its interest income as exempt under Item 7. The Respondent then issued a Notice of Assessment claiming Rs 158,145 from the Applicant on the ground that interest income of the Company is incidental to its Core Income Generating Activity (CIGA), and as such does not qualify for exemption under Item 7. The Applicant objected to the Assessment and lodged representations before the ARC.

The representations were set aside by the ARC.

In reaching this decision, the Committee explained that for an interest income to benefit from the exemption under item 7, it must satisfy all 3 conditions laid down in The Regulation which must all relate to the substance of the activities of the company. In this case, only one out the three conditions were in issue namely, the condition that the Company carries out its CIGA in Mauritius and this CIGA includes necessarily agreeing funding terms, setting the terms and duration of any financing, monitoring and revising any agreements and managing risks – the list is not exhaustive, but the CIGA must include all these activities.

In the case at hand, the Respondent demonstrated that, for the year under consideration, sale of electricity brought about a turnover of Rs 817, 200,269 while interest income amounted to Rs 2,151,623 – 0.25% of the total income. The sale of electricity thus yielded 99.75% of the total income of the Company. Based on this, the committee concluded that even if the Company does agree to funding terms, setting the terms and duration of any financing…etc…such activity does not relate to the substance of the activities of the Company which is the production and sale of electricity and which represents more than 99% of the income of the Company.

The Committee thus concluded that the Respondent was right to consider that the interest income is derived from activities not related to the CIGA as these activities do not qualify as CIGAs.

1. ABITA SHADES LTD V/S DIRECTOR GENERAL-MRA ARC/IT/139-18

The issue to be determined in this case was in relation to bad debts which the Applicant has claimed in its return and whether documents could be communicated and filed at the appeal stage before the ARC to substantiate the figures in its return.

The ARC allowed the Applicant to communicate and produce all relevant documents in connection with bad debts in order to ascertain the correctness of the Assessment as it was of the view that the Respondent cannot impose tax on bad debts which is allowable under S. 60 of the Income Tax Act.

1. ROGERS AVIATION INTERNATIONAL LTD V/S DIRECTOR GENERAL-MRA ARC/VAT/067-22

This case provides some guidance on the scope of the VAT Act.

The point of contention in this case was whether “overriding commissions” derived by the Applicant fall under the scope of the VAT and are zero-rated by virtue of Item 6(a) of the Fifth Schedule (Item 6(a)) of the VAT Act, as averred by the Applicant, or whether the “overriding commissions” fall outside the scope of the VAT Act on the basis that they do not satisfy the definition of “taxable supplies” inasmuch as the supply of services is not only utilised outside Mauritius but also performed outside Mauritius, as averred by the Respondent.

The Notice of Determination of the Respondent in this case was set aside by the ARC. In reaching this decision, the Committee first considered that the Respondent had not understood the business model of the Applicant and had thus wrongly determine the “taxable supply”. The Committee considered that the “overriding commissions” cannot be equated to simply “commission for the sale of air tickets outside Mauritius”, given that as a General Sales Agent (GSA), the Applicant’s business model was much more than a mere travel agent operating outside Mauritius. On the issue of services being performed outside Mauritius, the committee explained that the whole decision-making, marketing, accounting, and strategy are controlled and managed from Mauritius, and that therefore the sale of tickets outside Mauritius was a mere end-product of a chain of operations which take place in Mauritius. The services supplied by the Applicant therefore fell within the scope of VAT and was zero-rated.

Important Legislative Amendment

The Value Added Tax (E-invoicing) Regulations 2023 came into operation on 2 October 2023.

The actual e-invoicing system introduced into the Value Added Tax Act with effect as from 02 August 2023. It made general provisions relating to the operation of the system.

According to the e-invoicing system, a person carrying out a prescribed activity or a person to whom notice has been given by the Director-General must acquire equipment and software to issue fiscal invoices.

The Value Added Tax (E-invoicing) Regulations 2023 came into operation on 02 October 2023 and provides for the details about the operation of the e-invoicing system. The system will consist of the electronic billing system (EBS) at the taxpayer’s level and the invoice fiscalisation platform (IFP) at the level of the Mauritius Revenue Authority (MRA).

The EBS must be acquires from an EBS Solution Provider approved by the Director-General of the MRA and the taxpayer must ensure data connectivity between the EBS and the IFP.

The fiscal invoice will then be issued by the taxpayer which will include an Invoice Registration Number and a QR Code generated by the IFP.